What Does A Pensionless Future Mean For Age Discrimination?

Shareholder and IBM retiree Mike Saville of Salt Lake City, Utah, right, walks a picket line in front of the Charlotte Convention Center during IBM's annual meeting in Charlotte, N.C. on Tuesday, April 29, 2008. At IBM's annual shareholder meeting in Charlotte, the board of directors upped the quarterly dividend to 50 cents per share. For the past four quarters it had been 40 cents per share. (AP Photo/Nell Redmond)

Not long ago, Pro Publicareported on the extensive age discrimination that seemed to be (that is, without legal determination of such) taking place at IBM in the course of their Reduction in Force exercise.

ProPublica estimates that in the past five years alone, IBM has eliminated more than 20,000 American employees ages 40 and over, about 60 percent of its estimated total U.S. job cuts during those years.

In making these cuts, IBM has flouted or outflanked U.S. laws and regulations intended to protect later-career workers from age discrimination, according to a ProPublica review of internal company documents, legal filings and public records, as well as information provided via interviews and questionnaires filled out by more than 1,000 former IBM employees.

The entire report is distressing and makes for very sobering reading. Documents the ProPublica reporters obtained describe internal decisions to replace older Boomer-aged workers with younger ones viewed as better able to meet the company's agenda, all while using gambits to reduce their risk of age-discrimination lawsuits.

At the same time, readers who have watched the history of retirement plans will recall that IBM was a pioneer in the move away from traditional pension plans. In 1999, the company froze accruals in its traditional pension plan and moved to a cash balance pension plan for new accruals (that is, a hybrid plan which functions like a 401(k) plan with semi-guaranteed returns), in 2005, it switched to a 401(k) plan for new employees, and in 2008 it froze its cash balance and moved all employees to a 401(k) plan for all future accruals.

Allow me to share a personal anecdote: my father, too, perceived himself to be the victim of age discrimination. After a long and happy career as an engineer and manager at a large industrial company, he felt pushed out, and in particular believed that the company wanted to reduce its older male employees in order to be able to promote younger women into managerial roles.

But instead of being terminated, he left his employer as part of an early retirement “window.” This concept is fast becoming a relic of another time, but what this means is that employers who wanted their older employees to leave would offer enhancements to their pension, generally by eliminating early retirement reductions so that they could take the pension they would otherwise receive at age 65, much earlier. In some cases they might also receive a special supplemental benefit paid out until they are old enough to collect Social Security benefits. The term "window" comes from the fact that there was a limited window of time in which they could accept these incentives.

Now, on the one hand, the demise of the private-sector defined benefit plan should, in principle, reduce the prevalence of age discrimination. After all, it is older workers who are far more costly, in terms of their pension accruals, than younger workers, due to the pesky nature of "time value of money." The shift to defined contribution/401(k) plans ought to remove one incentive to terminate older employees, if their retirement benefits are exactly that same percent-of-pay contribution as for younger employees.

But employers still, in general, are keen to move older employees out the door. And traditional defined benefit pensions provided a tool for doing so without (or with lessened) ill-will, whether as a time-limited means of reducing staff without requiring layoffs, or as a general method of, as they say, "workforce management." After all, these employees had to voluntarily accept the offer, rather than being pink-slipped as in the case of IBM.

To be sure, there are other resources companies have at their disposal. For example, just last year, Ford offered a select group of employees buy-out cash payments of between 3 and 18 months of pay, in combination with such early retirement window benefits for which they might be eligible. But how many employers will take this approach, rather than the IBM approach of "age-discriminate while trying to avoid lawsuits"? Cash buyout payments seem to be a much tougher pill to swallow than early retirement pension enhancements.

All that being said, we're not going back to defined benefit pensions (that ship sailed long ago), and the use of early retirement windows could be said to have been mitigating or masking (depending on your perspective) a larger issue that employers will increasingly need to solve: how to respond to an aging workforce.

The age discrimination in the tech world is the subject of regular reports. For example, there's a class-action lawsuit against Google alleging age discrimination. The website theladders.com reports that "after 48, you’re less likely to get jobs in Silicon Valley." And The New Republic, back in 2014, reported on the experiences of a San Francisco plastic surgeon whose practice increasingly consisted of even relatively young men seeking to ward off any sign of aging so as to preserve their employability among tech employers.

To what degree such discrimination exists in other industries is less easy to measure. And there are no statistics that readily measure "real" unemployment among older Americans, because workers forced out of their jobs, or unable to find new ones that fit their skills and experience, tend to shift into leaving the labor market and becoming/being classified as "retirees," essentially becoming "discouraged workers" without that classification.

Will employers step up and figure out how to integrate older employees into their workforce? Will the EEOC ramp up its own fight against age discrimination, or will (ex-)employees find ways to band together to do so? Or will older workers who wish to stay in the workforce, and, indeed, are urged to do so by retirement experts, struggle to find a way?